Selective Share Repurchases in Terms of the Companies Act 71 Of 2008

  • Julian van Niekerk

Abstract

For the larger part of the existence of company law in South Africa, the repurchase by a company of its own shares was strictly prohibited.[1] In fact, repurchases were seen to be so inimical to sound company doctrine that Coetzee J, in The Unisec Group Ltd and Others v Sage Holdings Ltd,[2] noted that ‘the prohibition against such acquisition was not even expressly contained in any company statutes until some 50 years ago. So fundamental is this principle’.[3]


Our company law has come a long way since then – in 1999 the Companies Act No. 61 of 1973 (1973 Act) was amended to expressly allow for, inter alia, companies to buy back shares, subject to the fulfilment of solvency and liquidity requirements.[4] While these amendments represented an abolition of the capital maintenance rule for all practical purposes, there remained some doubts as to its continued fragmentary existence.[5] The Companies Act 71 of 2008 (the Act) has, however, unequivocally embraced the modern solvency and liquidity approach and the capital maintenance rule has been completely abandoned.[6]


The share repurchase regime under the 1973 Act was criticised as being ‘rudimentary’ and having ‘considerable scope for abuse by controlling shareholders’, especially with regard to selective repurchases.[7] This article investigates whether the Act has implemented the necessary reforms to adequately protect shareholders and creditors of companies against the abuse of repurchases, with particular regard to selective repurchases.


 


[1]    In prohibiting repurchases, South African courts followed the decision of the House of Lords in Trevor v Whitworth (1887) 12 App Cas 409. See F H I Cassim 'The right of a Company to Purchase Its Own Shares' (1985) 48 THRHR 318.


[2]    1986 (3) SA 259.


[3]    Supra at 264H-265B.


[4]    See sections 9-12 of the Companies Amendment Act No. 37 of 1999.


[5]    See Capitex Bank Ltd v Qorus Holdings Ltd and others 2003 (3) SA 302 (W) at 308H per Malan J: ‘While it is correct that the capital maintenance principle may still have residual application, the rule against a company purchasing its shares has effectively been done away with’.


[6]    Farouk HI Cassim, Maleka Femida Cassim, Rehana Cassim, Richard Jooste, Joanne Shev & Jacqueline Yeats Contemporary Company Law 2ed (2012) at 11.


[7]    See F H I Cassim ‘The new statutory provisions on company share repurchases: a critical analysis' (1999) 116 SALJ 760 at 776 and Kathleen van der Linde 'Share repurchases and the protection of shareholders' (2010) 2 TSAR 288 at 299.

Published
May 1, 2014
How to Cite
VAN NIEKERK, Julian. Selective Share Repurchases in Terms of the Companies Act 71 Of 2008. Inkundla, [S.l.], may 2014. Available at: <https://inkundlajournal.org/index.php/inkundla/article/view/21>. Date accessed: 09 aug. 2022.
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Articles